The fscs (Financial Services Compensation Scheme) is the body that covers people’s deposits in banks, in case those banks fail.
The rules are broadly that if you have £85,000 or more in a UK bank, and it fails, the first £85,000 is protected – you’ll not lose the money. You might have to be careful to spread your deposits out across banks – some banks are in groups (or ‘share’ a licence), and you will find the £85,000 is the amount protected across a group, not in each bank in a group.
Now having to keep more than £85,000 safe in a range of banks is obviously a ‘good problem’ to have. But over time a successful business could accumulate this and more, so what are the rules?
The bank has to be an official UK financial institution. The grouping issue can be complex though, as licence sharing is not always obvious. For example, Natwest is owned by RBS, but at the time of writing each have their own FCA licence. So you have £85,000 each of ‘cover’ for those banks. HSBC owns First direct. They only have one licence. So if you had £85,000 in each of those, you would only find the first £85,000 covered in total. You need to check with your bank if they are sharing their licence with other group banks.
As well as individuals, small companies, based in the UK also benefit from the same scheme. And from Friday 3rd we are told, larger companies will benefit from it as well. (At JSA we’re less worried about them as most of our clients would qualify as small companies.) This is sensible – the companies are separate legal entities.
So imagine you are a contractor who has savings of £85,000, and a company bank account with £85,000 in it too. Should you put the amounts in different banks – do you only in effect have one £85,000 of cover in each bank? The answer is that both you as an individual, and your company each have £85,000 of cover. So you should be safe with bank accounts in the same bank, subject to each having up to £85,000 – so a potential ‘pot’ of £170k of ‘cover’ in each banking group.
We of course cannot offer investment advice. For more information on this protection, and similar issues, see www.fscs.org.uk